Analysts say markets are expected to enjoy further upside this year, given the worst of the Covid-19 pandemic is over
In the Year of the Ox, the world is expected to continue its recovery from the Covid-19 pandemic, triggering strong recoveries across all markets and sectors, say analysts.
The pandemic has caused a shift in daily habits. People are more mindful about their personal hygiene in social spaces, while work from home arrangements and e-commerce are becoming essential in the New Norm.
As the pandemic struck, some sectors thrived, while others suffered from lockdown and social distancing measures being ordered in place by governments around the world. Market sentiment took a hit as the global economic outlook was clouded with uncertainty.
Fortunately, Singapore is well into Phase Three reopening of the economy and the light at the end of the tunnel is brighter for many, barring a spike in the cases of infections here, say analysts.
According to online trading and investment specialist Saxo Markets, the 2021 bull run will not be confined to equities. “In the past 227 years of recorded market prices, the world has witnessed a mere six commodity bull markets. The Saxo Strats team expects 2021 to mark the beginning of the seventh,” says Steen Jakobsen, chief economist and CIO at Saxo Bank.
“Now, as we contemplate the end of the pandemic, we see factors that indicate a rapid acceleration of the economy may be at hand,” says David Bailin, chief investment officer at Citi Private Bank.
“More fiscal stimulus, the reopening of the most impacted services sectors, the refilling of the supply chain for commodities, unfinished and finished goods, and the expected burst of ‘economic relief’ when people leave home for good portends a sharp recovery,” he adds.
Recovery play
Although interest rates have seen a dive in Singapore, analysts are still positive on Singapore’s banking sector. Maybank Kim Eng for one believes that the three local banks serve as “good proxies” to a broader economic recovery.
Maybank Kim Eng analyst Thilan Wickramasinghe is upgrading his outlook on banks here to “positive”, after strong market liquidity and stimulus expectations overrode a “negative” call in November 2020.
“This momentum is likely to continue, buoyed by continued economic relaxing, targeted support for the vulnerable sectors and higher non-interest income due to market volatility,” writes Wickramasinghe in a Jan 26 note.
Furthermore, while asset quality risks remain elevated, continued relief measures may see it “kicked further down the road”. “A relaxing of dividend caps in line with other OECD regulators could be a further upside catalyst,” he adds.
Similarly, CGS-CIMB Research rates Singapore banks as “overweight”, while DBS Group Research views the banking sector as “positive”.
DBS analyst Lim Rui Wen says, “We expect broad earnings recovery into FY2021 for Singapore banks alongside improving credit demand, higher long-end rates, as banks continue front-loading provisions in 4Q2020 which should support share prices as loan moratoriums begin to taper off.”
In agribusiness, 2020 had been a rocky year for the palm oil industry. Initially starting off strong in December 2019 and January 2020 on the back of weaker 4Q2019 output and commencement of Indonesia’s B30 biodiesel mandate, Covid-19 struck and oil prices plunged to below RM2,000/tonne ($658.4/tonne) in March from over RM3,000/tonne, which triggered a correction of palm oil stocks.
But as China and India began to reopen their economies, a recovery in CPO prices ensued. Additionally, dry weather from June 2019 to September 2019 affected production 12 months ahead in 2020, which caught out buyers hoping to buy at low prices in 2H2020 on the expectation of higher production. With low buyer stockpiles and low seller supplies, CPO futures reached an eight-year high of RM3,420/tonne on Nov 19, with DBS Vickers Securities analyst William Simadiputra expecting prices to stay high for some time.
Meanwhile, CGS-CIMB analysts Ivy Ng and Nagulan Ravi are “neutral” on the agribusiness sector, noting that the palm oil supply will improve in 1H2021 due to the rainy season.
On the overall commodity market, Saxo believes commodities is a must-have sector in investors’ portfolio during reflation.
“Our Saxo Commodity Sector basket, an inspirational list of 40 stocks with exposure to the commodity sector, has delivered a 171% total return since Jan 1, 2016. Year to date, the basket is up 7.5%, being one of the best performing segments of the equity market and underscoring that investors are positioning for reflation,” says Peter Garnry, head of equity strategy at Saxo Markets.
“Our view is that old energy sources will outperform clean energy, and that the green transformation trade will split into that of ‘quality green’ and ‘speculative green’, with the potential for the latter segment to experience a dramatic selloff,” he adds.
New Norms, new needs
The pandemic has also put a premium on connectivity and digitalisation.
Local telcos are now more important than ever, not just as providers of internet connectivity, but as essentials in helping companies go digital as telcos beef up their enterprise segments.
Maybank Kim Eng has a “positive” view on the telco sector and expects growth to be driven by an increase in Singapore government’s ICT spending to accelerate digitalisation and promote wider use of technology across industries.
As more people turn to the internet for their needs, there will be robust demand for new electronic products.
The global market size for advanced materials is expected to grow at a CAGR of 7.5% between 2020 and 2023, according to global market research and consultancy firm Frost & Sullivan. This is driven by the growth in the key end use segments for advanced materials such as smartphones, wearables and automotive.
Frost & Sullivan also estimates that the global market size for nanoproducts will register a 2020-2023 CAGR of 11% reaching US$7.8 billion ($10.4 billion) in 2023.
Another industry that seems to have come under the spotlight amid the complicated global landscape is the media and entertainment industry. With people staying at home more often, the need for home entertainment has increased.
China, the production base to many Mandarin drama series and blockbuster movies, has seen continued growth in recent years. According to UOB Kay Hian, it grew with a CAGR of 4.5% from 2015–2019.
“With a market size of RMB99.1 billion ($20.5 billion) in 2019, it does not appear to have reached its peak potential yet. This is given the increasing internet penetration, unlimited geographical reach and on-demand nature, which allows viewers to watch drama series in their own time,” say analysts Lucas Teng and John Cheong.
With these broad sectoral trends in mind, The Edge Singapore has narrowed down 10 stocks for investors to consider. May you have a happy and prosperous Year of the Ox.
Stocks to watch:
- Credit Bureau Asia: Recent dip an opportunity to buy this credit data provider
- DBS: You can bank on this stock in the event of a recovery
- First Resources: Seeking prosperity in palm oil
- GHY Culture and Media: Content champ who wields Jay Chou trump card
- HRnetGroup: Better hiring prospects make this a turnaround counter to watch
- Mapletree Logistics Trust: REIT that offers price stability, stable DPU in a volatile year
- NanoFilm Technologies: Tech firm that taps IP to build moats and drive growth
- SGX: Bourse operator to gain from higher trading volume, new growth pursuits
- Singtel: Undervalued telco under new leadership with new direction
- Spindex: Undervalued tech manufacturing player; potential privatisation candidate
